The intensifying crisis in Greece continued to raise fears over debt contagion as London’s leading shares index fell more than 2%.

EU finance leaders delayed a decision over the recession-hit country’s next loan instalment of eight billion euro (£6.9 billion) amid fears it is not doing enough to push through crucial austerity measures.

Greece, which needs the funds by next month to avoid debt default, is falling behind with deficit-reduction plans required by the International Monetary Fund, European Central Bank and European Commission.

Investors dropped banking shares amid fears over their exposure to Greek debt and the wider implications of a potential default, with Lloyds Banking Group falling 6% and Barclays and Royal Bank of Scotland dropping 5% apiece.

Chris Purdy, trader at Spreadex, said: “Greece’s continual refusal to swallow the prescription to pass further austerity measures has European markets worried sick.”

Elsewhere, the Dax in Germany fell 3% and the Cac-40 in France dropped 2.5%.

The EU and IMF agreed 110 billion euro (£96 billion) of bailout funds for Greece in May last year and a further 109 billion euro (£95 billion) was provisionally agreed in July this year but this still needs ratifying by a number of parliaments in eurozone member states.

The Greek government, meanwhile, has promised to stick with its plan to post a surplus in 2012 – that is, bring in more cash than it spends. Greek finance minister Evangelos Venizelos reiterated his pledge to record a three billion euro (£2.6 billion) surplus in 2012, compared with a deficit of 24 billion euro (£21 billion) in 2009.

Elsewhere, the eurozone debt fears saw oil prices fall with Brent crude in London dropping 0.4% to 113.88 US dollars a barrel and light crude on the New York Mercantile Exchange falling 1.5% to 86.69 US dollars a barrel.

The global growth fears also hit metal prices with copper dropping 2% to its lowest level this year, leading to a slide in mining shares, including Kazakhmys, down 6%, Antofagasta, off 6%, and Vedanta, dropping 5%.